Entering the workforce, start earning own income, financially independent, 20’s
At this stage, you start working, start earning your own income and start enjoying the freedom of financial independence from your family. Now, you are financially responsible at least for yourself. Although you would probably have the constraints of your income level, but as a young adult, you got to face the task and learn how to manage your spending and saving. Make efficient use of your limited financial resources. And developing a sound financial habits is critical to build yourself a solid financial footing in life. Have a head start and set yourself a better financial future.
Here’s what deserves your attention financially:
1. Create your budget and live within means.
- Never spend more than you earn. Learn how to budget. Decide how much you can afford to spend and save each month.
- Spending Recommendation (50% Living Expenses, 30% Discretionary Spending, 20% Saving for future). Strive to save 30% or more of your income. 10% for Long term, 10% for emergency fund, 10% for large purchases.
- Your spending budget is limited. So spend on things that make your life more meaningful. Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.
- Shop for the best-value especially for big purchase item or long term commitment purchases like Life insurance, Car insurance, mobile plan, broadband and loans. By spending less on the things that you’re already paying for, you can have more money to spend, save or invest.
2. Make saving a habit.
- Make it a habit to save part of your income every month. Automated your saving mechanism. Set up an instruction to automatically transfer a portion of your income to saving or investment account. By making the job of saving easy and painless, you have a better chance of saving consistently.
- Also, consider regular investment for long term portion. This allow you to build the discipline take advantage of dollar cost averaging to further reduce your overall investment risk.
3. Build an emergency fund.
- Life is full of uncertainties, you should start building up an emergency fund of 3-6 months total expenses saved up as financial cushion to cover unexpected expenses. It is important to build this fund soonest possible.
- This portion of money has to be kept in save and liquid tools. Apart of Fixed deposit, you can also consider Money Market fund because of its FD liked of return but without the need to lock your money for the fixed period.
4. Review your insurance coverage.
- You might already have some insurance coverage from your parents. But now you are financially responsible for yourself. Review your insurance coverage to ensure it meets your needs. Make sure you have an up-to-date medical coverage to cover you from unexpected big medical bill which your saving can hardly afford. Also consider some reasonable amount of coverage for critical illnesses and disability. It is important to make sure you have sufficient fund to move on with life if misfortune were to happen and you can’t continue to work. You won’t want to take the risk of being a burden to your family again, rite?
- Shop around for good value solution. It can save you lots of money. Consult your licensed adviser for unbiased advice.
5. Start with some saving goals.
- Whether it is accumulating for the down payment for a home, paying for a car or saving for your marriage or for a vacation, connecting a tangible goal with your saving can provide the motivation and discipline you need to save.
- Consider setting up different account for different goals. You can have different investment strategy for different goals with different time frame. It will be easier for you to monitor your progress and adjust your strategy toward your goals.
6. Start Investing early.
- While you are building up your savings, start to invest part of your savings into financial assets that will give you better return for your money. Understand your available investment option, their pros and cons, then build a diversified portfolio which suite your situation and time frame.
- Start early to take benefit from the effect of compounding, a powerful mechanism that puts time to work on your savings. Consult your licensed adviser for unbiased advice.
7. Repay your student loans.
- Work on to pay down your student loan debt.
8. Watch your debt to income ratio.
- You might start taking up car loan or housing loan. Try to limit your total monthly loan repayment at maximum 35% of your total income. If you are yet to take up housing loan, kept it at 15% max.
Independent and unbiased advice will be beneficial for you kick-start your financial journey in the correct direction. Wealthcare.my connect you to a professionally qualified and licensed financial adviser.